Sinking Entrepreneurship

by Richard Schwartzman, The Future of Freedom Foundation
Jul. 09, 2011

It happens every spring. Umpires shout out to grown men, “Play ball,” and bureaucrats shout out to kids, “Shut down that lemonade stand.”

While the latter might not happen every year, it happens often enough. Sometimes a mayor will trot out, tell the bullying code-enforcement officers to go away and then he buys a glass of lemonade to show what a great guy he is. Other times, the mayor, or some other city official, will defend the ordinance, saying kids have to learn.

Perhaps this year the situation was a little more over the top. The kids set up their stand near the Congressional Country Club in Montgomery County, Maryland, site of the U.S. Open golf tournament last month. That the kids were selling the lemonade as part of a charity drive to raise money for cancer research didn’t matter. Their parents were fined $500.

The good news is that the county relented and waived the fine after the negative publicity the incident received. The bad news is that this stupidity still goes on. It’s a small thing when compared to other actions governments take to interfere with private enterprise, sort of a head-cold compared to much more dangerous bureaucratic diseases that threaten entrepreneurship.

Consider the National Labor Relations Board’s action against Boeing. The NLRB claims the aircraft manufacturer illegally shifted jobs from its locations in Washington State, where employees must belong to a union, to South Carolina, a right-to-work state where people are free not to join a union.

Boeing spent $1 billion to build the South Carolina plant, where it plans to manufacture the 787 Dreamliner passenger aircraft, yet it continues to maintain its Washington facilities, even adding 2,000 new jobs there. Yet the NLRB wants to shut down the South Carolina operation before it gets started, even though jobs are being created in both states.

President Obama himself has been tiptoeing around this one and even the Washington Post, generally no fan of management, is siding with Boeing as having a right to open the new plant.

Meanwhile, another law is costing jobs, or at least revenue, in California. In a push to generate more revenue, California is pushing Amazon.com to collect and remit sales taxes for transactions in the state. Amazon has said no.

“This legislation is counterproductive and will not cause our retail business to collect sales tax for the state,” said Paul Misener, Amazon’s vice president of Global Public Policy.

The company has cut ties with 10,000 affiliates in California, those in-state websites that generated business for the online retailer. They used to get paid, but now they get nothing.

Amazon is also shutting down its affiliate program in Illinois for the same reason.

California is yet doing more to destroy the entrepreneurial spirit, this time by throwing a classic Catch 22 bureaucratic spitball at a family yogurt manufacturer. Homa Dashtaki, an Iranian émigré, and her father came to the United States in 1984 with a family recipe for yogurt.

As reported by The Economist:

Her business, while it lasted, consisted of herself, making yogurt on the instructions of her father. Ms Dashtaki was renting space in the kitchen of an Egyptian restaurant where she and her father, “like elves before and after their working hours”, lovingly cultured their yogurt under a blanket, then drained it through a certain kind of cheese cloth, then stirred it for hours, and so forth. For the taste to be divine, everything has to be just so. And, being artisans, they kept the volume tiny, about 20 gallons (76 litres) a week, for sale only at local farmers’ markets.

Customers loved the product, but not so the state government.

Dashtaki reportedly had the necessary permits, but that wasn’t good enough for the California Department of Food and Agriculture. The CDFA regulators first assumed that the yogurt was made from raw milk. This was a false assumption. The milk was pasteurized.

Even though she was making only 20 gallons, the regulator demanded that Dashtaki set up a dairy plant to pasteurize her milk again, even though it already was cooked. She would need a pasteurizer with a recorder, a culture tank, filler, and a mechanical capper.

She told the regulator that all this would destroy the flavor of the yogurt and the regulator agreed, but that didn’t change the requirements.

Dashtaki relented, but was then informed by a licensing officer that California code does not allow milk to be pasteurized twice — unless she got a waiver from the CDFA folks who told her to do the second pasteurization in the first place.

Dashtaki is now considering a move to some other state.

California is not alone in its penchant for regulations that hurt people who are trying to make a living. In municipalities cross the country, would-be taxi drivers and hair braiders are unemployed because they can’t afford a license to go into business. In some parts of the world such payment would be been called baksheesh, in others it would be tribute. Here in the land of the free it’s a business-privilege tax. (People don’t realize that starting a business is a right, not a privilege.)

Maybe there are still occasions when U.S. city streets are paved with gold, but one needs to do a fancy quickstep to dance around the red tape and avoid the dirty end of the stick. But be sure to bring some heavy cash to pay the government piper.
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Richard Schwartzman is managing editor at Chadds Ford Live in Chadds Ford, Pennsylvania.